The Indiana Court of Appeals will hear oral arguments today in the legal battle over a $52 million judgment the state has been ordered to pay IBM over the failed attempt to privatize public welfare services under former Gov. Mitch Daniels.

The hearing is scheduled for 1:30 p.m. in the Indiana Supreme Court courtroom, with judges John G. Baker, Ezra H. Friedlander and Nancy H. Vaidik hearing the case. Both sides will get 45 minutes to argue their cases.

The state is appealing a Marion Superior Court judge's 2012 ruling awarding $52 million to IBM after the state canceled a contract Daniels had hailed in 2006 as the solution for fixing one of the nation's most troubled welfare systems.

Instead, the project ended with the state firing IBM in 2009 after hundreds of millions of dollars were spent for a system that generated widespread complaints of delayed benefits and impersonal interactions.

The dispute ended up in court, with the state trying to recoup more than $150 million of the $437 million it had paid IBM before scrapping the deal and IBM asking for $113 million for breach of contract.

Marion Superior Court Judge David Dreyer ruled in July 2012 that IBM should get $12 million, mostly for equipment the state kept after canceling the contract, on top of the $40 million that he had ordered the state to pay IBM earlier.

In his ruling, Dreyer called taxpayers the losers in a "misguided" privatization experiment. And he cited trial evidence that showed the state, even while publicly praising IBM, was trying to cancel the contract because it would cost additional money the state didn't have to adjust what had been a flawed plan.

"Neither party deserves to win this case," he wrote in his 65-page ruling. "This story represents a 'perfect storm' of misguided government policy and overzealous corporate ambition. Overall, both parties are to blame, and Indiana's taxpayers are left as apparent losers."

At the time the trial concluded, the state had paid Barnes & Thornburg, the Indianapolis law firm that handled the lawsuit, $9.6 million.

Indiana vs. IBM

Arguments:

State officials argued that they hired IBM to do a job that it failed to accomplish and that IBM should refund some of the more than $400 million the state paid.

IBM lawyers said that the state couldn't afford to continue the 10-year contract, so it canceled in 2009 after only three years. The state then sued the company for breach of contract, IBM's attorney said, so it wouldn't have to pay about $100 million in termination costs. IBM followed with its own breach of contract claim.

Decision:

Marion Superior Court Judge David Dreyer excoriated both sides for failing to do right by taxpayers, saying neither deserves to win the lawsuit. He ruled that the state owes IBM $12 million — less than IBM had sought — and rejected state officials' contention that IBM owed the state for damages. Dreyer previously ruled that the state owed IBM $40 million for subcontractor fees.

A case history

May 2006: Consortiums headed by IBM and Accenture seek a $1 billion contract to manage applications and eligibility review for state and federal assistance programs operated by the Indiana Family and Social Services Administration. The state's effort draws fire from critics, who question the speed of the process and the contenders' track records.

July 2006: Gov. Mitch Daniels confirms that the only group left in negotiations is an IBM-led team that includes Dallas-based Affiliated Computer Systems. FSSA chief Mitch Roob worked at ACS before joining the Daniels administration.

November 2006: Daniels announces Indiana will pay $1.37 billion over 10 years to the IBM-led companies to help upgrade the way the state handles food stamps, Medicaid and welfare programs. About 1,500 of the 2,200 FSSA employees who handle applications will be offered in-state jobs with IBM or its partners. By 2017, the IBM plan would save Indiana nearly $500 million, according to state estimates.

December 2006: Daniels signs the contract.

May 2008: The American Civil Liberties Union alleges in a suit seeking class-action status that problems with the new system have caused some disabled Hoosiers to lose benefits.

June 2008: The state suspends the rollout of automated welfare benefits because FSSA staffers are busy helping victims of major flooding in Central and Southern Indiana.

July 2008: Because of complaints that needy Hoosiers are being forced to wait too long for food stamp applications to be processed, Indiana officials suspend any further rollout.

March 2009: Advocates call on Daniels and state lawmakers to cancel the state's 10-year contract.

July 2009: FSSA Secretary Anne Murphy puts IBM on notice, requesting the company submit a corrective action plan as part of a process that could result in canceling the deal. IBM presents a 326-page plan to fix problems.

August 2009: The Associated Press reports that Indiana will spend nearly $180 million more than it planned on the deal.

October 2009: Daniels announces that Indiana is canceling its contract with IBM.

May 2010: FSSA and IBM file lawsuits against each other in Marion County.

July 2010: IBM demands return of more than $9 million in computers, printers, telephones and other equipment.

March 2011: State attorneys ask for a protective order to bar Daniels from having to provide depositions in the case.